State Budget Crunches Turning Up Pain for Agencies

With state after state releasing dismal budget projections for the coming fiscal year, Jewish social service providers are bracing for cutbacks and further economic hardships.

State governments provide anywhere from 10% to 60% of the funding to Jewish agencies nationwide that care for the most vulnerable segments of the population, including nursing homes, employment services, family and children’s services, and refugee counselors.

At least 30 states anticipate deficits for their 2004-2005 budgets, according to conservative estimates, and experts agree that these shortfalls will be closed through funding cuts rather than tax increases. Until the budgets are finalized during the next few months, the extent of the cuts will not be clear, but social service providers of various religious nonsectarian stripes are worried.

“The last few years have been tough,” said Genie Cohen, the executive director of the International Association of Jewish Vocational Services. “But we still have not experienced the real brunt, which I think is going to come in the 2005 budgets.”

Budget crunches in many states have already produced shortfalls at Jewish agencies throughout the country. Even with the recent talk of an economic upturn, new state budget reports suggest that the tough times are far from over.

“The bottom line is that state budgets will be tight and continue to be tight in 2005 and perhaps beyond,” said Scott Pattison, the executive director of the National Association of State Budget Officers. “People should plan accordingly.”

The depth of the state fiscal crisis and its consequences for social service providers is thrown into stark relief by the situation in California, where legislators are wrestling with an estimated $15 billion deficit – one-fifth of the state’s general fund – for the coming fiscal year.

In the budget proposal for fiscal year 2005 unveiled two weeks ago by Governor Arnold Schwarzenegger, 43% of the total spending cuts, some $3.1 billion, is slated to hit health and human services. The state’s Medi-Cal health program for poor residents — which is the single largest source of state funding for Jewish agencies providing social services — will face especially severe cuts.

The proposed budget would cost the Jewish Family Services of Los Angeles about $750,000 — nearly one-fifth of the $4 million received from the state this year — according to Paul Castro, executive director of the agency. The cuts will come through reductions in Medi-Cal funding, state grants and government money distributed through the county and city governments of Los Angeles. The many conduits through which the state channels money make it hard to determine the precise magnitude of the cuts and the trickle down effect of lost money at local hospitals, which could make the strain on Family Services even greater.

Some of Schwarzenegger’s cuts will probably be reduced by California’s Democratic-controlled legislature, but Castro says that inevitably “the coming year is going to be the most difficult year for social service providers since the 1970s.”

California is an extreme case, and there are a few states, including New Mexico, Nevada and Utah, with healthy fiscal situations. But for most states — including the ones with largest Jewish populations — California’s problems are familiar. The anticipated deficit for next year is 21% of the total budget in New Jersey, 13% in New York and 9% in Illinois.

As in California, these deficits are likely to be tackled through further cuts to services, said Woods Bowman, a professor at DePaul University, who authored a recent report on the interaction of state budgets and nonprofit service providers.

“Barring tax increases — which most states seem to be very reluctant to do unlike during previous recessions — states are relying on spending cuts to solve the problem,” Bowman said. “That is going to have a serious long-term effect on the non-profit services sector.”

The resulting spending cuts tend to fall particularly heavily on social service providers, because “the biggest elements of the state budgets, like Medicaid, education, and prison budgets, are exempted from most cuts,” said Tom Gais, director of the Federalism Research Group at the Nelson Rockefeller Institute of Government. He added: “Much of the pressure ends up on health programs and social services.”

Many affected services — like youth counseling and early childhood care — are programs that nonprofit organizations took over from the government after funding cuts instituted by state governments during the 1990s. “Social service providers,” said Sheri Brady, public policy director at the National Council of Nonprofit Associations, “do get a good percentage of their funds from governments to provide safety net services that the government had provided in the past.”

Last year, the $145,000 in cuts to the Boston Jewish and Family Children Services, forced the agency to eliminate early childhood health programs, services for the retarded and counseling for young mothers. In Columbus, Ohio, the transportation network for elderly residents has had its budget pruned by 6% each of the last two years. Yet, for Richard Lamden, president of the Wexner Heritage Village, the retirement area that coordinates the service, the real concern lies ahead.

“We see looming the potential loss of all funding for our program from the state,” Lamden said. “For the elderly who are able to go shopping and avoid isolation through our program, that would be devastating.”

The reasons for the continuing budget crises vary from state to state, as do the level of cuts. But a number of factors stand out across the country.

In the boom years of the 1990s many state governments instituted tax cuts, almost none of which were reversed during the recent recession.

A new study from the Center for Budget Policy and Priorities found that government tax revenues last year were at their lowest level, in relation to the economy as a whole, since 1968. The declining state revenues have come at the same time that state governments have been given increasing responsibility for welfare programs and homeland security from the federal government. In addition, the costs of Medicaid and education, which consume a majority of the state funds, have been rising swiftly. Medicaid costs alone rose 9.3% across the country last year.

To cover these costs states have drawn from the surpluses that amassed during the late 1990s, and turned to temporary measures, like borrowing against the money expected to come from tobacco settlements. But most of these one-time revenue sources have dried up, according to experts, and the states are still confronting large deficits.

“Even when the economy recovers,” said Iris Lav, deputy director of the Center on Budget Policy and Priorities, “the states have dug themselves a very deep hole, so it’s going to be a year or two until they can dig themselves out.”

State tax revenues did grow in the last quarter of 2003 — by 0.4% — for the first time in almost three years. The growth, however, was not nearly enough to cover even the rising costs of Medicaid, according to Pattison, executive director of the National Association of State Budget Officers.

The Jewish agencies wrapped up in the state budget problems are confronting a similar double-barreled dilemma. State funding dried up at the same time that philanthropic giving has dipped and demands for job counseling and emergency food aid have increased.

“People are turning to us more than ever for jobs and emergency financial assistance,” said Bert Goldberg, president of the Association of Jewish Family and Children’s Services Agencies. “At the same time our funds are smaller than ever.”

Many local federations have made efforts to step up fundraising, and the general giving climate has improved with the stock market’s recent rise. But, said Andi Milens, the national director of community relations at the Jewish Council for Public Affairs, “there’s no way that philanthropically the Jewish community can make up the gap” created by state funding cuts.

“If state governments aren’t able to provide the funding,” Milens said, “the Jewish community will not be capable of meeting these needs.”